Iraq’s economic
instability: The past, the present and the future
During the period 1970 to 2010, Iraq experienced three types of
conflicts. First: internal conflicts mostly between the central
government and the Kurdish community in the North and between the government
and the oppositions. Second: external conflicts such as the war with
Iran (1980-1989), Saddam’s invasion of Kuwait and the ensuing Gulf War that led
to a worldwide military coalition to evict him by force. This was followed by
total UN sanctions, which lasted until the toppling of the regime in 2001 by
the Americans. The 1980s also witnessed serious internal conflicts; largely a rising
religious opposition met by government crackdowns. Third: political
conflicts related to the
occupation that began in 2001 following the US military. The 2000s has
been very violent. Violence included a near civil war, ethnic killing, civil
unrest, score-settling, and military confrontation between the central
government and the Kurd.
Instability adversely affects economic development and progress. I
would like to compare the economic instability of Iraq with that of Iran. The
two countries share the decade of war from 1980 to 1989 and so should have a
similar magnitude of instability. Iraq, however, continued its waring
activities throughout the 1990s and until recently, whereas Iran avoided wars. Given
these facts, one would expect Iraq to be the more volatile economic environment
of the two.
The Penn Table 7.1 is the most recent world data.[1]
Figure 1 plots the purchasing power parity (PPP) – converted real GDP per
capita in levels for Iraq and Iran from 1970 to 2010. First, clearly
Iran is much richer than Iraq. Its income per person averages approximately
9000 international dollars per head, whereas the Iraqi average income per head
is 3500 international dollars. Second, both Iraq and Iran benefited from the
oil shocks in 1973 and 1979. Income per head peaked at 17000 dollars in Iran
and 6000 dollars in Iraq. Third, both countries suffered during the war period
from 1980 to 1989. Average income per head plummeted to 8000 dollars in Iran
and to 4000 dollars in Iraq. During the 1990s, Saddam invaded Kuwait in 1990.
In 1991, he was evicted by force and the UN subsequently imposed devastating
economic sanctions, which lasted until 2001. During that decade Iraq’s average
income per head was approximately 2500 dollars, which is less than half its
average income per head in the previous decade. Iran’s average income per head
only slightly increased because Iran managed to avoid major conflicts.
I compute the average income per head growth rate and its
standard deviation for the decades 1970s, 80s, 90s, and 2000s for both
countries. The standard deviation measures the distance from the mean, which is
a common measure of uncertainty, instability and variability. I found some interesting
facts. First, Iraq’s growth rate during the 1970s was 7.74 percent, while
Iran’s was 0.09 percent. This is a significant difference. It might be because Iraq
grew from a very low base during the 1960s. There are no data for this period
for Iraq, but Iran’s average GDP per person growth rate for the period 1960 to
1969 was 6.54 percent, which is relatively high. Those who lived in Iraq during
the 1970s, like me, felt the development and progress achieved in 10 years. Although both are relatively large in magnitudes, the
standard deviation is much higher in Iran, 12.75 compared to 8.43 in Iraq. These countries were
experiencing high uncertainty and variability.
High uncertainty notwithstanding, one must conclude that Iraq was doing
rather well and much better than Iran in the 1970s. Second, during the war (1980-1989), both countries grew at negative
rates of -4.1 and -4.9 percent, respectively. The standard deviations were
identical and very large (10.12 and 10.11 for Iran and Iran, respectively),
which suggests that both economies were equally unstable. The war reduced
economic growth and increased instability and uncertainty. Third, Iraq continued its war adventures in the 1990s, while Iran did
not. Iraq’s average income per person growth rate over the decade 1990-1999 was
1.3 percent, while Iran grew at a healthy rate of 2.65 percent a year. The
standard deviation of Iraq’s income per person rose to a whopping 41.75 and that
of Iran was cut by half to 5.29. The combination of wars and sanctions completely
broke Iraq’s economy and the problems continued to the next decade and persist now.
This period was the worst in Iraq’s modern history. Fourth, for the period from 2000, during the US invasion and
occupation of Iraq and until 2010, Iraq’s growth of income per person remained
1.3 percent a year whereas Iran managed to grow at a very healthy and fast rate
of nearly 5 percent annually. Economic uncertainty continued in Iraq, with a
standard deviation of approximately 20, while Iran’s was halved again to 2.6
percent. Although Iran keeps growing and improving its economy by staying out
of conflict, Iraq’s has not found its way to resume development and growth even
under different political and economic circumstances.
In conclusion, Iraq’s economy is severely broken. That it survives
at all is attributable to increasing oil prices. Its productivity and labour
utilization rates must be just as low as its income per person growth rate. Uncertainty
has been clouding everything. It is hard to expect any improvement especially
when the whole Middle East is in turmoil. Even if the political situation in the
region improves, wars cease, and normality returns, Iraq will need a miracle to
get to where it was in the 1970s.
Figure 1
[1] Alan Heston,
Robert Summers and Bettina Aten, Penn World Table Version 7.1, Centre for
International Comparisons of Production, Income and Prices at the University of
Pennsylvania, July 2012.
